Cucinaria, Milano

Ashley Doit, raised in Dubai but living in Milan, shook her head, wondering if this was a dream or a

nightmare. Two months ago, she had obtained the partial rights to market a disruptive food technology

that, she hoped, would turn her into a millionaire and eliminate her financial reliance on her family and,

with it, the threat of an arranged marriage to her repugnant cousin, Roger. She was now ready to start

and had rented space in an incubator in Milan's Design District. While Ashley had little idea about how

to begin, she has you, the reader, to help her develop a clever marketing plan. Given her scant

resources, largely exhausted by start-up costs, she knew that she would have to develop a positive cash

flow in a hurry.

The Problem and the Technology

Most restaurants, even the most famous ones, prepare food during slack times, freeze it, then reheat it

in microwave ovens for use during peak periods. The result is that, while food can be ready to serve in

an instant, flavor and texture suffer. However, Cucinaria, an Italian restaurant and catering firm, had

developed a new technology that kept food fresh in a refrigerator for two weeks instead of the usual

three days. This improvement meant that food was never frozen and thus kept its freshness and flavor.

Cucinaria's main business was to mass produce the same meals available in a famous Milanese

restaurant- then deliver these to company canteens all over the city.

The result was that a canteen could offer top-quality restaurant food a low cost without having a kitchen

or cooks along with the cooking licenses, permits and inspections that these entail. Additionally, as

meals were delivered on disposable trays, there was no clean-up. The final benefit was perhaps the

most important: everyone knew that Cucinaria's recipes were created by a famous chef and that they

were prepared to the same standards. Thus, the logo, "Cucinaria" had a very positive effect on

employee morale.

Cucinaria's CEO, Giuseppe, met Ashley at a party. Giuseppe rejected selling through supermarkets as

they would sell at very low prices that would undercut Cucinaria's catering business. However, he told

her that there were several good ways for an ambitious individual to make money. Marketing

Cucinaria's products. She was to limit herself to these alternatives.

First, he thought that she could sell in the gourmet food sections of department stores and in

neighborhood delicatessens. Approximately 50 such department stores existed in Italy's three largest

cities and about 100,000 price-insensitive customers purchased their food in them. These stores

purchased directly from the manufacturer.

Another alternative was to sell through delicatessens. There were perhaps five thousand delicatessens

all over Italy, mostly in expensive urban neighborhoods. They reached a good proportion of the upper-

middle class, perhaps 1,000,000 people. However, while delicatessens usually purchased locally from

hundreds of small wholesalers, these were not prepared to deliver refrigerated food so that Cucinaria

would have to deliver directly to the stores. Prices in both department stores and delicatessens were

lower than in good restaurants but much higher than in supermarkets. Customers of both proudly

displayed purchases in the stores' bags.

There were some practical concerns with both alternatives. First, logistics would be a problem. Costs

would rise and the products would begin to spoil. Another problem was that northern Italian cuisine was

rather different to southern Italian cooking so that the traditional Milanese risotto would not sell well.

Another alternative would be to sell directly to consumers through home delivery. Giuseppe thought

that consumers would be glad to purchase Cucinaria's meals with the added convenience of home

delivery. At first, Ashley could operate out of her home. After all, she would only need a few telephone

lines, a web server and a large refrigerator. She could hire delivery personnel by the hour. As Milan was

a densely-populated city, she could serve a population of more than 10,000 households, mostly

individuals, within a one-kilometer radius. There were also many small offices where a few professionals

might order lunch. This was important as individuals would mostly order an evening meal.

Giuseppe's final alternative was to set up stores. He envisioned small, elegant stores that, along with a

broad assortment of Cucinaria's meals, would sell delicacies and wine to give the store an "upmarket"

feel. A small area would be reserved for customers that desired to consume purchases in the store. As

no cooking was involved, the store would not need a restaurant license and one person could attend to

customers. The stores would require an investment in remodeling, furnishings and equipment together

with rent and salaries. However, Giuseppe thought that Cucinaria might reserve this option for

themselves if Ashley did not open stores within the year.

After hearing these opportunities, Ashley convinced Giuseppe both that she was the person to

undertake the project of commercialization and that she should do it as owner-entrepreneur to

minimize risks to Cucinaria. After a brief visit with the firm's lawyers, she was ready to begin. She asked

you, as a graduating senior in Marketing, to help her develop a Marketing plan. It was reasonably

accurate though imperfect.

Instructions:

Please help Ashley Doit by answering the following questions. Please answer them in order in the space

provided. Please write carefully. I will not grade your answer unless I can read it.

Section I: Each of the following questions are worth X points.

1)

Please describe the target customer for selling to delicatessens using all four possible segmentation

variables. I will count any assumption that does not contradict the facts in the case as correct.

2)

If you sell to department stores, what would your value proposition and positioning strategy be?

Please explain your answer.

3)

Which of these alternatives should Ashley choose first? Circle one: home delivery, selling through

department stores, selling through delicatessens, setting up stores. Please explain your answer.

4)

Which alternative would you choose first to maximize profits if you were a wealthy investor?

5)

If you sell to department stores, would this be a convenience, shopping or specialty good? Please

explain your answer.

6)

If you sell to delicatessens, would you use direct or indirect distribution? Please explain your

answer.

7)

If you sell to department stores, would you use push or pull promotion? _________ . Please explain

your choice.

8)

Which promotional tools would you use for home delivery? Please explain your choice.

Section II Pricing

9)

Ashely is considering home delivery in her neighborhood but she doesn't know how much she can

charge. She does know that her customers perceive that the value of eating in a nice restaurant 2

Euros more than eating at home and that restaurants charge 9 Euros for a similar meal. Her

delivery costs are 2 Euros and she pays Cucinaria 3 Euros for the food.

a.

What is the lowest price she can charge and not lost money? _____________

b.

What is the highest price she can charge and still hope for customers? _____________

c.

Should low elasticity cause her to tend towards higher or lower prices? ____________

d.

Given low elasticity and the facts of the case, would you use skimming or penetration

pricing? Please explain your answer.

Section III CRM

Marco, a friend of Giuseppe, told Ashley that he would be interested in delivery to his office. However,

she would have to install a microwave oven (300 Euros) and a refrigerator (500 euros) to get the

business. He would give her a six month contract in exchange for those investments. You may use the

following figures in your calculations:

6

Lunches per day

6

Price Euros per lunch

3

Cost per lunch

3

Delivery cost per day

20

Workdays per month

Please evaluate:

A)

Should Ashley accept the contract (assuming that she can finance the purchases)? Show your

calculations.

B)

What would Marco's lifetime customer value be if Ashley could keep him for five years? You

may assume a 10% discount rat.

Part c.

The accompanying graph contains the production possibilities frontier (PPF) for Rubberland. Rubberland only Rubberland's Production Possibilities 200 makes two products, rubber band balls and rubber hoses, and on a given day can produce according to the PPF in the 180 graph. Point A on the PPF represents the combination of the 160 two goods Rubberland currently produces. 140 When a new method of rubber processing is discovered, the 120 productivity of all Rubberland's inputs increases. Please shift the PPF to show this change. Quantity of rubber band balls 100 Assume that Rubberland does not make more rubber band balls than they originally made at point A but still maximize their productive capabilities. Move point A to their new 40 production point. How many more rubber hoses do they now produce per day PPF than before? 10 20 30 40 50 60 70 80 90 100 Quantity of rubber hoses 20 more hoses per dayNews Analysis for Ch 04: When it Comes to Textbooks, both Students and Publishers do Their Homework 2. Shifting supply and demand in the market for new textbooks Consider the market for new copies of a popular economics textbook. The downward sloping blue line on the following graph shows the demand curve for new copies of the textbook one year after the release of the latest edition. Assume the textbook is revised on a four- year cycle. Expected resale value represents the amount of money students can expect to get by selling their textbooks in the used market at the end of their course. Use the graph Input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and the corresponding amount in the grey field will change accordingly. (Hint: Once you leave the page or select Check Answer, this calculator will reset to its initial values.)